What Is Value in Procurement? — A University Lecturer’s View (Part 2a)

We are pleased to bring you the second part of Value in Procurement, an exclusive mini-series from Dr Jo Meehan, senior lecturer in strategic purchasing at the University of Liverpool Management School. You can read part 1 here in two parts, where she begins by discussing what we mean by 'value.' Today she explores further, published again in two parts with the second tomorrow morning.

Jo is currently involved in research exploring procurement maturity in the social housing sector. This links with wider research she is doing on the value - in the delivery phase - of major contracts. Jo is particularly passionate about championing the cause of contract management; she is concerned about how many organisations are leaking money through a lack of buyer-side contract management,  and her concerns pertain to both public and private sectors. 

My research gives me a fascinating window into procurement practices across different sectors. One sector I have come back to again and again is social housing and I know all too well that landlords have been having a tough time recently.

The market continues to face ongoing political and financial challenges – from welfare reform and the government’s Right to Buy scheme, to 1% rent reductions and a continued loss of grant funding. In response, many housing associations are merging and others are exploring the potential of shared services.

For procurement, this new landscape is creating opportunities and threats in equal measure. Mergers and corporate structures mean that some housing associations have grown to a significant size, rivalling some of the sector’s buying groups, yet the need for local regeneration can restrict the motivation to collaborate.

Is bigger better?

The question for procurement is whether buying ‘bigger’ gives housing associations and other businesses across the public and private sector a better value proposition?

Procurement groups are common in parts of the public sector and particularly within the social housing landscape, but we have to look back at their history to understand their future potential. Unlike mature markets, where consortia and alliances are used to defend dominant positions and create barriers to entry, their use in social housing was largely driven by procurement immaturity in individual organisations.

History of collective procurement

Under the Decent Homes programme, which began in 2000, procurement consortia thrived in the social housing sector. Most housing associations did not have fully resourced professional procurement resource, so to manage significant capital spend procurements in a regulated environment was risky.  Regional and national housing associations entered into collaborative arrangements to pool the considerable spend associated with Decent Homes, and crucially, to access professional procurement skills.

These collective procurement models delivered both commercial savings and social outcomes. Unfortunately the messages on why many consortia were so successful were not fully appreciated. The danger is that the sector still fails to understand the value of professional procurement, or how the early consortia wins were achieved.  A lack of procurement knowledge can conflate volume and outcomes and miss the more strategic role that procurement plays in consortia.

Tomorrow we will continue with Value through Volume, and, The Rise of Knowledge

Dr Jo Meehan will be speaking about procurement in the social housing sector at PfH Live in Manchester on 29th June.

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